By Steven Ralston, CFA
On March 8, 2017, IEG Holdings (OTC:IEGH) reported financial results for the year ending December 31, 2016. For the year, revenue increased 16.3% to $2,135,046 from $1,835,165 in 2015. Cumulative loan volumeincreased to $14,109,023. This represents 28.4% YOY growth reflecting the origination of $3.1 million in loans during 2016. As of February 28, 2017, cumulative loan volume has further increased to $14,234,023.
However, net loan receivables declined 10.5% to $6,374,908 compared to $7,124,702 as of the end of 2015, primarily due to an increase in loan receivables being repaid ($2,004,433 in 2016 compared to $1,438,946 in 2015) and an increase in loan charge-offs ($1,638,296 in 2016 versus $746,106 in 2015).
As of December 31, 2016, the company had 83 loans with a total balance of $367,098 that were in default or delinquent (as defined as over 90 days past due), which represented an unsecured personal loan delinquency rate of 4.8%, which is at the high-end of its 3-year history since the inception of its online platform, but an improvement sequentially versus the third quarter when 97 loans totaling $433,781 were in default or delinquent. A key for lenders is to manage loan losses at reasonable levels. IEG’s management targets net loss rates of approximately 5%.
Salaries and compensation expenses decreased 25.1% (or $533,253) to $1,592,990 versus $2,126,243 in 2015, primarily due to the termination of the VP Corporate Finance and no bonus being paid to the CEO for 2016. In 2017, the CEO’s annual base compensation will be reduced from $1.0 million to $1. The provision for credit losses expense increased 64.4% (or $730,844) to $1,865,362 due to the increase of loans being charged off during the first and fourth quarters. Advertising expenses decreased 60.7% (or $577,555) to $373,350 versus $950,905 in 2015 due to a decrease in customer acquisition costs, including those for online advertising, direct mail and lead generation.
Part of an auditor’s responsibility is to evaluate whether there is substantial doubt about a company’s ability to continue as a going concern for a reasonable period time. If conditions raise substantial doubt about a company’s ability to continue as a going concern, relevant cautionary language is part of the Report of Independent Registered Public Accounting Firm. For the year ending December 31, 2016, for the first time, the “going concern” cautionary language did not appear in the Auditor’s Report.
Concurrent with the year-end financial results, management updated earnings guidance for the first quarter of 2017. Due to the expenses related to the tender offer for shares of OneMain Holdings (including the $170,237 filing fee), the company now expects to incur a net loss and negative net operating cash flow negative for the first quarter of 2017.
Management continues to expect to change the company’s dividend policy. After the financial results for the first quarter are announced, management intends to pay an inaugural dividend to shareholders.
During 2016, IEG Holdings obtained State Licenses to offer loans in Maryland and Ohio, bringing the number of states to 19 in which IEG Holdings d/b/a Mr. Amazing Loans may operate. Management is planning to obtain six additional state lending licenses in 2017.
IEG Holdings Corp. is a consumer finance company that offers unsecured consumer loans (under the brand name “Mr. Amazing Loans”) to individuals in 19 states via an online platform (mramazingloans.com). The company provides $5,000 and $10,000 personal consumer loans over a term of five years in Alabama, Arizona, California, Florida, Georgia, Illinois, Kentucky, Louisiana, Maryland, Missouri, Nevada, New Jersey, New Mexico, Ohio, Oregon, Pennsylvania, Texas, Utah and Virginia.
IEG Holdings is still in an early phase of its life cycle with the loan originations volume on a high growth trajectory. The company should trade at a much higher multiple reflecting the company’s potential. We maintain our price target of $8.50 for IEGH.
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